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Microsoft (MSFT) Continues to Face Threats on Activision Deal

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Microsoft’s (MSFT - Free Report) deal of acquiring Activision Blizzard (ATVI - Free Report) is facing an anti-trust complaint from The U.S. Federal Trade Commission as it is likely to file a lawsuit to stop the $69 billion deal.

The deal has been facing scrutiny outside the United States as well. The acquisition is facing an in-depth probe in the United Kingdom, which has entered the second phase of review with the Competition and Markets Authority, as they believe that this acquisition could hurt competition in gaming consoles, subscription services and cloud gaming if Microsoft refuses to give competitors access to Activision's best-selling games.

The EU opened a full-scale investigation earlier in November as well. The EU competition enforcer said that it would decide by Mar 23, 2023, whether to clear or block the deal.

Microsoft Sturdily Fights its Battle of Legal Woes

This acquisition got Microsoft in a tussle not just with authorities but with its competitor Sony (SONY - Free Report) as well, which also offers cloud gaming through its PlayStation Plus subscription. Sony raised concerns that the acquisition could influence people to switch from PlayStation to Xbox. Activision’s most popular game, the Call of Duty series, has been the best-selling game in its genre, and losing that to Microsoft could take away huge business from Sony.

On the other hand, Microsoft has alleged that Sony has been paying developers blocking fees to prevent games from appearing on Xbox Game Pass and other competing subscription services.

Microsoft has offered Sony a ten-year contract to keep Call of Duty on the PlayStation, which extends much beyond its current contract. It also states that Sony’s Playstation remains the industry leader and not giving it access to games would ultimately cause a loss of revenue for Microsoft.

Microsoft is also contemplating making the game available on Nintendo’s (NTDOY - Free Report) Nintendo Switch console, where the game isn't currently available. If successfully done, this will help Nintendo boost its game line and attract players along with its existing hit franchises like Brain Age, Kirby, Super Smash Bros, Pokémon and Mario.

This Zacks Rank #4 (Sell) company has also shown its will to cooperate with all concerned authorities as and when required to address their grievances.

On the brighter side, Microsoft achieved approval from Brazil’s competition authority as they stated that they operate in a highly dynamic and competitive industry and that the merger will not harm competition in any way.

Saudi Arabia has also signed off on the deal, but it still awaits important decisions from the U.S. Federal Trade Commission and authorities in the U.K. and the EU.

This gives some relief to the company and its investors. Shares of Microsoft have fallen 26.4% year-to-date, outperforming the Zacks Computer & Technology sector, which declined 31.9% in the same time frame.

Microsoft might face possible conditions imposed on the gaming deal by regulators, compelling them to keep access open to Call of Duty for longer and ensure that its rivals aren't getting a lesser version. Despite this, if the acquisition is successfully closed, it will be the largest in the history of the tech industry.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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